Representing A Buyer Purchasing A Bank Owned/REO Property
By Steven R. Greenberg
It should come as no surprise to you that there are a glut of foreclosed (“Bank Owned” or “REO”) properties on the market. Many Buyers are looking only for “foreclosed” or “short sale” properties to purchase since it is perceived by Buyers that these are the best bargains on the market. This article will focus on the Counter-Offer Addendum used by the banks in the sale of REO properties.
It is critical that REALTORS® understand that the REO Counter-Offer Addendum supersedes all conflicting provisions of the Contract. There are often times when there are subtle differences between the two documents. For example, time periods may be different for the same matter and, in fact, the computation of time periods may also be different in the documents.
Some other points of concern in a typical REO Counter-Offer Addendum are as follows:
1. The Deposit is held by an Escrow Agent of Seller’s choosing, usually the closing agent selected by Seller.
2. The Buyer must submit a prequalification letter from either a direct mortgage lender (or from the bank that owns the property) or in a cash transaction, proof of liquid funds on deposit in the U.S. sufficient to close the transaction.
3. The Closing Date is modified to be the specific date set forth in the Contract, or five days after Buyer’s receipt of the loan commitment, “whichever is earlier.” This can be a real trap for the unwary.
4. The Seller is only required to provide insurable title, not marketable title. If the Seller’s closing agent will insure the title to the property, the Buyer is obligated to accept it. The ramifications of this modification to the Contract are far reaching, and will be addressed in a future article.
5. The Buyer is purchasing the property in its “as is, where is” condition without any warranties whatsoever. Accordingly, the Buyer must rely solely on inspections to ascertain all matters pertaining to the condition of the property.
6. No personal property is included in the sale even though items of personal property may have been included in the Contract. Some Counter-Offer Addendums provide that no personal property is included in the sale unless specifically described in the Counter-Offer Addendum. Accordingly, it might be necessary to include the items of personal property both in the Contract and the Counter-Offer Addendum.
7. The Buyer waives all rights to file and maintain an action against the Seller for specific performance. The only right afforded to Buyer in the event of default by the Seller is to receive a refund of the Buyer’s Earnest Money Deposit. This is of significant concern since the Seller can intentionally default under the Contract at the last minute, e.g. someone offers more money for the property and the Buyer’s only recourse is to receive a refund of the Earnest Money Deposit. It should be noted that in my experience, rarely does the bank default under Contracts for the sale REO property, but it is possible and the Buyer has an inadequate remedy.
This article is intended to be only an overview of some of the difficulties with the REO Counter-Offer Addendum. It is imperative that a real estate lawyer represent the interests of the Buyer in a REO sale of property. In next month’s article, other problematic areas of the REO Counter-Offer Addendum will be discussed.
BIO
Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at REinfo@icardmerrill.com [1].
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